In the Sherman Antitrust Act of 1890, acting Assistant Attorney General Joel I. Klein has a powerful weapon to challenge MasterCard and Visa rules that prevent banks from issuing competing cards.

The act allows the government to seek an injunction to stop anticompetitive activity or break up the offending companies.

"It is a very broad law," said Steven C. Sunshine, who ran the financial institutions section in the Justice Department's antitrust division during most of President Clinton's first term. "It says any contract that restrains trade is illegal."

One of the government's options is to pursue a "per se" case, saying an agreement the parties have reached on its face violates antitrust law. Typical of a per se violation is price fixing-two companies agreeing to inflate the cost of their products. If a judge accepts a case as a per se violation, then the government must prove only that the contract exists.

A second type of case, under the "rule of reason," is harder to prove. The government must show that an agreement restrained competition for a particular product in a specific market.

Several lawyers said they expect any Justice Department action against MasterCard and Visa to be of the rule of reason variety. Convincing a judge that the card association rules blatantly restrain trade would be nearly impossible, they said.

"Some kinds of antitrust violations, like price fixing or dividing sales territories, are per se illegal," said Michael Greenspan, a lawyer at the Washington firm Thompson Coburn. "But most rules, like those that are keeping out American Express, are not."

That leaves the Justice Department with a tough choice: A rule of reason case could drag on for years, involving scores of expert witnesses testifying about the relative market power of each credit card provider.

But dropping such a high-profile investigation might be seen as a signal that the government sanctions exclusive agreements-a perception that could make it difficult for the Justice Department to bring future cases.

"Dropping the case doesn't necessarily mean Justice is saying there is not a problem," Mr. Greenspan said. "But that is how the industry tends to read it."

If the Justice Department pursues the case, MasterCard and Visa would also be in a tough spot. A victory would cost millions of dollars in legal fees, but a loss would be even more expensive because consumers could bring class actions.

"If the government litigated and won, then private plaintiffs would profit," said Mr. Sunshine, a partner at Shearman & Sterling in Washington.

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